The Scottish Mortgage (LSE: SMT) share price has been one of the best-performing stocks on the London market this year. The investment trust, which specialises in technology and growth companies, has returned 112% over the past 12 months.
In the past six months alone, the investment trust has returned nearly 50%. This performance suggests there could be further gains on the horizon. But I’m not rushing to buy the stock just yet.
Technology portfolio
There’s no doubt in my mind the Scottish Mortgage share price is one of the best performing investment trusts of all time. Over the past 10 years, investors who’ve held onto the stock have seen a 600% increase in the value of their holdings.
The key to this performance has been the trust’s exposure to technology. Scottish Mortgage has been willing to make significant investments in technology companies that other investment managers have avoided. Some might view this strategy as risky, but it’s certainly paid off over the past decade.
One of the investment trust’s of best-performing investments is electric car manufacturer Tesla. The company stuck its neck out to back this business, becoming the largest shareholder after its founder Elon Musk.
This gamble has certainly paid off. The stock is up several hundred percent this year. While Scottish Mortgage has taken some profits on the position, it still accounts for around 14% of assets under management.
There’s more to this investment trust than Tesla. Its portfolio list reads like a who’s who of the tech world. Amazon, Netflix, and China’s Alibaba Group all feature in the top 10 holdings.
The rest of the portfolio is comprised of a broad selection of large and small technology companies, as well as private businesses.
Scottish Mortgage share price concerns
However, despite the performance of the investment trust this year, I’m sceptical about its near-term potential. Technology stocks have surged higher in 2020. As a result, most are now trading at some of the most expensive multiples in recent history.
These multiples suggest the companies will have to grow at high double-digit rates for the foreseeable future to justify their current valuations. The risks of a potential crash are growing. This could have a substantial negative impact on the Scottish Mortgage share price.
That said, the investment trust has a good track record of navigating turbulent market environments. It’s also been reinvesting profits from some investments into new companies.
Therefore, I’m cautiously optimistic on the outlook for the Scottish Mortgage share price. Yes, the trust might see its share price fall if the value of tech stocks crash. But, in the long term, the manager’s focus on technology, and ability to hold high-growth stocks for years, is extremely attractive.
As such, I’d look past short-term headwinds and focus on the long-term potential of the Scottish Mortgage share price.
